Why are Long systems more lucrative than Short ones?

Discussion in 'Strategy Development' started by tenthousandmen, Jan 25, 2012.

  1. A very basic question, I know, but I thought others would have some great insight on this...

    Especially with index's, the market almost always defaults to making a new price. Logic would say this is because things are always growing everyday - more people are being born, etc. As a result, intraday systems generally do better going long than short - and even sometimes loose money on shorts, even when the equations are adjusted for short trading.

    This notion seems to be especially true with commodities, where things are almost always trending in a direction everyday.

    Forex seems to be a whole different ball game, where it's difficult to decide just on raw data.
  2. LeeD


    Perhaps because there is a long-term uptrend in many financial instruments due to inflation alone?
  3. What is an index?

    Weighted average value of 30 or more large companies.

    Would it make sense if the value of the average would go down over a long period of time? That would mean, the largest companies in this country are collectively losing value (this means many things) over time. Stagnation and moderate growth are what history has proven to occur long term (decades+).

    What is a commodity?

    A physical good that is produced & consumed (typically).

    Would it make sense if the value of a commodity were to go down over long periods of time? That would mean, the most common goods that are created, traded and consumed are no longer needed and consumed over a long period of time (or the supply is limitless - which will never be the case).

    Of course there is more but I think these are the most basic principles.
  4. I'm assuming you are referring to longer term trends?
    In my opinion, short ones have the potential to be more lucrative because:

    1) Periods of fear/anxiety seem to have more intensity than periods of euphoria (with the 99 dotcom explosion a possible exception).
    2) Most people (funds, etc) are biased to the long side. Many funds cannot short and most people either hold and pray or buy more, which puts a lot of folks on the wrong side and panicking when things get ugly. Even the concept is shorting is foreign to most people (think of how many people you know who don't trade that know what a short is).
  5. Equity markets have a long-term upside bias...

    Companies always trying to grow and to increasing earnings.

    Government/Fed trying to get/keep markets bullish through intervention.

    Inflation, deficit spending stimulus, currency debasement.

    These measures only promote nominal growth (you know... like the reason the Wall Street Journal cost $.02/issue when it first published... now $3.50)... as for "genuine" growth, inflation and currency debasement need to be properly factored out to get the real story.

    America has had periods of real growth... especially during/after WW II. However, we may have had none for the last 20 years (nominal "increases" accounted for by deficit spending, inflation and currency loss).
  6. gmst


    At the most fundamental level, world's population is growing -> everything else grows with it.
  7. ssrrkk


    Yes agreed, it's population -> GDP -> stock market

    GDP is made up of producing and consuming.

    Every new person on this earth is guaranteed to consume. Some of them might even produce.
  8. ==========
    Good points,
    not that i would try to really factor out inflation & buy WSJ for 2 cents.:cool:

    Also , i may mention most capitalists like to make a profit ;
    cost plus profit ....................God bless us.

    This also makes the'' long '' term downtrend /beartrend of big banks like Citibank /Citigroup all the more remarkable.Not a prediction:D

    Actually, its good to study downtrends;
    even for long only systems/ investments..................................................
  9. Because it is hard for trading systems to time market declines due to their fast modes. At least the trading systems you know.

    The rest heard here are either gross misconceptions or secondary reasons.
  10. This was the biggest rationalie I was thinking...

    And this isn't just long term, aside from the catastrophic periods like Q4 2008, the market defaults to determine a higher price much more often than it does a lower one. Of course, most of the lows are put in after the market tries to test a high price and fails...

    This isn't just about systems (of which you are so quick to hammer in other threads), it's about why the market likes to pick a higher high more often than it does pick a lower low.
    #10     Jan 25, 2012